Every so often, one of a very small and select number of organizations issues a report that provides an estimate of the cost to develop a new drug — from scratch — and gain approval to market this drug from the U.S. Food and Drug Administration. And there is no question that this is an extensive and expensive undertaking. But … Just how expensive is a very contentious issue.

Yesterday, the Tufts Center for the Study of Drug Development issued a statement about the results of its first new study on this topic in about 10 years, along with a backgrounder and a detailed slide presentation explaining (in part) how they reached their conclusions that:

  • The out of pocket costs for the developer are now $1.395 billion.
  • The lost opportunity cost (i.e., the deferred revenue for the investor compared to just investing that $1.395 billion in the stock market) is now $1.163 billion.
  • Giving us a total cost of $2.558 billion.

And that’s just to get a single indication here in the USA. Additional post-approval follow-up research could add another $312 million to that number.

For reference, the last time the Tufts Center issued a comparable report (in 2003), the number was $803 million. In other words, according to the Tufts group, there has been a 218.6% increase in the cost of drug development in the past 10 years. By comparison, according to The Economist, even in Great Britain, where the cost of a house has remained high despite the recent economic bubbles, house prices have increased by only 108% in the past 38 years!

It is always hard to clarify, understand, and interpret data like these, which helps to explain the reactions of a number of other organizations to these numbers. (See, for example, this reaction from the Director Policy and Analysis at Doctors Without Borders/Médecins Sans Frontières.) Here are some of the things that are worth considering when you look the the Tufts analysis:

  • The “input data” for this study came from “information provided by 10 pharmaceutical companies on 106 randomly selected drugs that were first tested in human subjects anywhere in the world from 1995 to 2007”, but we don’t know which companies or which drugs.
  • Success rates in the development and approval of new drugs have declined significantly in the past decade. Why that is the case is an interesting question.
  • Individual new drugs quite certainly can be and are developed for a great deal less than $2.5 billion, but rarely for less than $100 million.
  • The costs assigned in this study take account of and include the high number of molecules that fail to achieve success at some point along the development pathway (before, during, and after the clinical testing process).
  • There is (arguably) an unfortunate lack of complete transparency about how this study was funded and/or exactly who had any degree of input or control over the final report.

The CEO of GlaxoSmithKline, Andrew Witty (who presumably ought to know) has indeed stated, very publicly, in 2013, according to the Reuters news service, that

the $1 billion price tag was “one of the great myths of the industry”, since it was an average figure that includes money spent on drugs that ultimately fail.

He went on to say that,

It’s entirely achievable that we can improve the efficiency of the industry and pass that forward in terms of reduced prices.

Some — but not all — would argue, and many would agree, that the historic models used to assess the costs associated with drug development, which then get used to justify the high prices associated with many new drugs today, are no longer appropriate. These models may be intellectually interesting from an academic perspective, but critics have been stating for a long time now that  the biopharmaceutical industry needs to do a much better job of explaining and justifying its costs and pricing structure.

Others are going to suggest that the high failure rates for new drugs reflect an unwillingness on the part of industry to “cut their losses” early enough in the development process and thus become more efficient. Again, Reuters quoted Witty as stating that:

If you stop failing so often you massively reduce the cost of drug development … it’s why we are beginning to be able to price lower.

What seems clear to us here at Calcium is that, as we have suggested before, we are getting close to “crunch time” with regard to the relationship between the costs of biopharmaceutical development and the prices payers (and patients) will be willing to pay for medicines … and most particularly for those medicines that offer limited value (e.g., an additional 2- to 3-month survival benefit for someone with a very advanced form of cancer).

The cost to develop new drugs is, very, high. The cost of failure in the drug development business is even higher. But the great unanswered questions that so badly need to be addressed are:

  • How can we increase the efficiency of drug development?
  • How can we raise the probability of developing and bringing to market products recognized by all concerned to have high value?
  • Can we find ways to lower the overhead and the overall costs of drug development and share this information with the public in a more transparent manner?


About Mike Scott

Mike Scott is a highly experienced health care communications strategist with Calcium. He is also a board member of three different patient advocacy organizations. To get more detail, see his profile on LinkedIn.

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